Empowering the poor

Now this is a great story. Sweeping through the international news, I caught this obscure piece on institutions that are lending enough money to the poor to give them a chance to build their future. On my radio show, I had interviewed the head of one such institution, and loved that conversation. It’s about something callied ‘microfinance,’ and it’s one of the best ‘good news’ stories you almost never hear in the media.

So I was glad to see this. It all started when a young economics professor went to a poor village to see how he could make a difference.

…their biggest problem was that they were so heavily indebted to the moneylenders that they had almost lost their freedom of individual action. The moneylenders were charging exorbitant rates of interest that were multiplying the outstanding amount exponentially beyond the paying capacity of the poor villagers. He offered to provide his own personal funds to them so that they could pay off the moneylenders. Professor Yunus felt that this was a kind of donation from him to get the villagers out of an adverse situation. To his utter surprise, he found that the villagers paid back the full amount to him. This experience led him to think that the poor were better borrowers and the loans extended to then were relatively safe and secure. Unlike the influentials they were in no position to delay a default on their loans because if they did so they would be cut off from access to funds in the future and this will destroy their earning capacity.

Normally, that’s a dead end. But not for a resourceful humanitarian.

The question that arose in Professor Yunus’s mind was as how to persuade the bankers to replicate this limited experience of one village without requiring any collateral – the standard recipe of conventional banking. With the help of his students he experimented with the idea of creating a new type of agricultural cooperative – Three share farm. The landlords would contribute the use of their land during the dry season, share croppers their labor and Professor Yunus the cost of running the deep tube wells. But in this experiment he realized that the widows, divorcees or abandoned women with children to feed were too poor to be even share croppers. They were landless and assetless and without hope.

He brought hope, and a plan.

So Professor Yunus turned his attention towards this group of the poorest of the poor – the women. He took out a loan of $ 300 from a state – owned bank on his personal guarantee in December 1976 and the Grameen Bank was born.

The rest is history. From a zero base in 1976 the Microcredit movement has reached out to more than 100 million people in the developing world.

How, you wonder, can banks or financial institutions make a whole new venture out of giving small loans to the extremely poor.

Grameen and Professor Yunus’s work has shattered some popular myths about banking. Unlike the rich, the poor particularly women are more reliable and better credit risk. The banks do not have to reply upon collateral and securities as the only tool to recover their loans. A knowledge of the borrowers’ needs, staying close to them, monitoring their performance and helping them out when the conditions turn adverse are the critical success factors for ensuring almost 100% recovery.

My interview was with Chris Crane of Opportunity International. As he described much of the same story as above, I said it’s like the saying ‘give a man a fish and he’ll eat for a day; teach him to fish and he’ll eat for a lifetime.’ And without missing a beat, Crane said “help him build a boat and he’ll feed his entire village.”

So I checked out Opportunity’s website after reading the story about Professor Yunus, and found this:

Today, we give thanks and congratulations for the award of the 2006 Nobel Peace Prize to Muhammad Yunus and Grameen Bank, our fellow pioneers in the development of microfinance as a proven, long-term solution to poverty.

Yes, with a busy weekend, that’s one boat I’d missed — the news about the Nobel Prize.

We also thank the Norwegian Nobel Committee for recognizing the role that microfinance is playing today in alleviating poverty throughout the world. In its award, the Committee said, “Micro-credit has proved to be an important liberating force in societies where women in particular have to struggle against repressive social and economic conditions.”

There’s a lot to love about this story. But my favorite part of it is that it all began when Professor Yunus first visited this village and asked “How can I help?”

That’s always the right question.